Subject: SR-NASD-9909
Author: "millenniumtrading"
Date: 6/27/99 4:44 PM
I am writing to you to express my concern about the proposed rules
regarding Agency Quotes. While in theory not a bad idea, the way
the implementation is being proposed if approved as is, will
signifcantly hurt the efficiency and fairness of the market.
The fact that only market makers will be able to display an agency
quote is unfair. Why can't broker-dealers who are not market makers
display their customer orders through an Agency Quote. This to me
does not seem fair and just.
The fees which will be charged are by far the worst aspect of this
proposed rule. Any additional fees imposed on broker-dealers
generally is not a good idea. However, when these fees could be
different depending on who accesses the Agency Quote, this is not
only unfair, but the most extreme form of discrimination there is.
Why should the access be charged at varying rates depending on who
accesses it? This would be unfair to the participant who accessed
the quote, worse to the customer wanting the best execution (because
chances are the broker-dealer will pass this cost along). This is
not consistent with giving the investor the best access to market,
since another participant may be charged a smaller fee for accessing
the same quote.
Charging a fee in general is not a good idea since there is a greater chance that the customer which is behind the Agency Quote will not
get the execution which he/she may have recieved if there were no
fees being imposed. For instance, Customer A wants to sell 500 shares
of Intel at 55 1/4 which is displayed in Market Maker ABCD's Agency
Quote. In addition, there is an ECN on the offer (say ISLD which most
firms do not charge any extra fees to access). If I am customer B and
I want to buy Intel at 55 1/4, I am going to access the quote on ISLD in order to avoid having to pay ? (well I don't know how much because
the Market Maker behind the Agency Quote can charge me whatever they want). The point is, is that Customer A who wants to sell Intel at 55 1/4 may not get their execution for no other reason then the fee being imposed.
The implementation of fees will be further unjust because the customer,
who will probably bear the cost, in most cases will have no say whether their order gets filled from an Agency Quote. The way the rules and systems currently work, is if a market order is entered into SOES it will be executed by the next market maker in the rotation which could be an Agency Quote. This will act to increase the customer's transaction
costs only for the benefit of the market maker. This lack of control
where the order gets routed to is further hampered by the proposed
change in Selectnet, specifically getting rid of the Selectnet
preference capability (all in the guise of removing the double liability
exposure of market makers).
The commission should keep in mind the increase in global competition which exists especially in the financial markets. As you are aware,
the technology exists for US investors to invest globally almost as asily as domestically. This trend is only going to increase in the
coming years. Adding to the costs associated with accessing the markets
does not seem to be the prudent thing to do in this era of increased
competition.
The arguement that market makers are using to convince this commission to allow them to charge for accessing Agency Quotes is that ECN's are
allowed to charge fees while they're not. While this is true, it is so
for a reason. These trading networks were allowed to give market articiapants better access to the markets. Anyone can see that this
has in fact happened.
Spreads have narrowed in large part because of the ECN's. In addition,
liquidity has improved dramatically because of their presence. Just from
observation alone these important benefits can be attributed to the ECN's presence. For instance, so many market makers quote only 100
shares, while ECN's in the same stock will be quoting several thousand
shares. Since ECN's are solely a matching system, they do not have any
other way of receiving compensation. Market makers can and do profit
from the order flow in which they receive. Market makers are just
angered by these ECN's because they have narrowed the spreads which
they used to profit from, and in addition to that, have taken a large
part of the order flow away form them. In this environment I think
it is proper to reward the participants who help create a more
efficient and just market place and not the market makers who more
and more are becoming a less important factor in the marketplace.
If the commission believes that it is beneficial to have separate Agency
Quotes then allow all market participants to have this same right. However, in any case do not allow fees to be charged, since this
benefits no one except the market makers and it does so at the expense
of the customer. Let's work to lower costs not increase them.
Thank you for taking the time out to hear my opinion.
Steve